Afrexim Bank is using oil traders to fund a $3 billion loan to Nigeria’s national oil business, which is essential to the nation’s efforts to support the naira.
According to Reuters sources, Afrexim recently contacted traders to gauge their interest in supporting the oil-backed loan to national oil company NNPC LTD. It is attempting to come up with terms to present to trading houses.
This is in light of the nation’s currency rising to 1000 naira to a dollar in the foreign exchange market.
“There is a lot of interest, but they need to see the conditions,” a senior oil executive with knowledge of the negotiations told sources. The executive noted that increasing oil prices above $90 a barrel would help increase interest, but he asked that his name not be used because he is not permitted to speak publicly on the matter.
The $3 billion loan was announced by NNPC LTD, Nigeria’s state oil corporation, in August as part of its relentless efforts to support the naira, which is losing strength. The country’s economic problems have been made worse by the devaluation of the currency and the ensuing disparity between the official and black market exchange rates, which has led people and businesses to seek for dollars there.
The suggested system calls for traders to get actual oil cargoes as payment from financiers. According to one of the sources, Afrexim Bank is painstakingly calculating the precise amount of oil that would be provided to these dealers in exchange for their financial support.
At his confirmation hearing on Tuesday, new central bank chief Olayemi Cardoso said clearing outstanding foreign exchange obligations to local lenders, which could amount to $7 billion, was his top priority.
Due to the backlog, there are fewer dollars available on the legal market, prompting companies and individuals to go for them on the black market.
Cash-up fronted traders would receive physical oil cargoes as payment. One of the individuals claimed that the bank is figuring out how much oil to give certain dealers in exchange for the funding.
NNPC and Afrexim Bank have not yet commented on the situation, and NNPC has not yet made an announcement on this project. Nevertheless, as Nigeria works to stabilise its currency and economy, all eyes are on this ground-breaking alliance.
The partnership between Afrexim Bank and oil dealers offers a special chance to strengthen the naira and stabilise the country’s financial outlook as Nigeria navigates the difficult economic landscape. However, the ultimate conditions reached and the traders’ willingness to take part in the endeavour will determine how successful this novel funding method is.